Last week, I penned an article posing the question of whether or not Vivus had taken a hit bigger than it should have on news that the company expected the EMA in Europe to reject the European version of Vivus' Qsymia anti-obesity drug. The premise was actually quite simple: equities react to news. In fact, as is often the case, equities tend to overreact to news. Therein can lay an opportunity for a trader. There are literally scads of active traders that seek out companies announcing something good or bad. They simply wait for the right time and profit from irrational exuberance or irrational fear.
Vivus (VVUS) is a company that has an FDA-approved drug, Qsymia, that currently enjoys the status of being the ONLY prescription anti-obesity drug on the market, though that will likely change in Q1 of 2013 when competitor Arena Pharmaceuticals (ARNA) releases its anti-obesity drug Belviq. Being first to market and with at least a one quarter lead would typically be something pretty compelling. However, what transpired after the initial approvals and subsequent launch was a warning from the company that the European version was expected to be denied. The stock took a big hit on the news.
Did everyone forget that there is still huge potential in the United States? That potential has not evaporated. In fact, Qsymia is currently shipping to patients here in the U.S. The Qsymia website is already in the top 100,000 in the United States according to Alexa, which is not an easy task in the first month of a website. The global ranking for the Qsymia website is 433,321 which is also impressive. In essence, people are looking for Qsymia and getting more and more informed about the product.
Despite all of this, the question still remains: Is Vivus finished bottoming out, and will it rise from current levels? An answer to that type of question is never simple.
In my opinion, the Europe news was indeed overblown, and Vivus will be likely announcing some positive developments in the months to come. Despite a setback in Europe, there is still a huge market in the United States and numbers will begin to be available when the company conducts its Q3 conference call. In my opinion, at that point, the street will see potential stateside that makes Vivus and Qsymia viable.
The equity did trade up over 2% today, and it would appear that the bottom is perhaps in. I love to watch the volume on an equity. If there is heavy volume behind a move (up or down), it typically means that there was strength (rational or otherwise) behind the move. As volume subsides, it is an indication that the strength in that direction is weakening. We can see that with Vivus currently.
We can see that when Vivus announced the Europe news on September 21st that the equity took a hit on the news and did so on very heavy volume. The following day the downward pressure continued on high volume, but lower than the previous day. You can see the pattern continue all the way until this past Friday when Vivus essentially held the line on low volume. Today, the equity rose on more volume than Friday. That is the type of signal a savvy trader looks for.
This does not mean that Vivus will rocket back up. The issue with European rejection is still very real, and will carry implications. However, this is a possible new support level that the equity can build on from here. Depending on what your research tells you, this could be a good entry point if you are positive on the prospects of Vivus overall.
Watch the volume tomorrow and let's see what transpires. If it can hold the line and maintain volume, the bottom could well have been reached.
Disclosure: I am long ARNA.
Additional disclosure: I have no position in Vivus